Bavaria, Hesse Challenge German Fiscal Redistribution in Court

March 25 (Bloomberg) -- The governments of Bavaria and
Hesse, two of Germany’s richest states, filed a lawsuit at the
country’s highest court in Karlsruhe today in an attempt to pay
less to poorer regions.

The home states of companies including Bayerische Motoren
Werke AG and Deutsche Bank AG are the two biggest per-capita
contributors under Germany’s system of financial equalization.
Together with Baden-Wuerttemberg, they raised 7.9 billion euros
($10.3 billion) last year for poorer states such as Berlin.

“We expect the highest German court to provide minority
protection for taxpayers in Bavaria and Hesse,” Bavarian Prime
Minister Horst Seehofer said in an e-mailed statement. “We aim
for cohesive and equitable financial equalization that rewards
one’s own efforts and punishes idleness and a recipient
mentality.”

German Chancellor Angela Merkel’s Christian Democratic
Union and its Christian Social Union Bavarian sister party, led
by Seehofer, face electoral challenges this year to their
respective rule in the two states. Bavarian voters go to the
polls on Sept. 15, one week before elections on Sept. 22 in the
state of Hesse and national elections the same day in which
Merkel is seeking a third term.

The city-state of Berlin gets more than 40 percent of the
total amount available for redistribution while the city-state
of Hamburg has become a net recipient even though it generates
the highest per-capita tax revenue in the country, Seehofer
said, calling the equalization program “grotesque.”

Hesse and Bavaria want a cap on transfers coupled with
incentives for recipient states to strengthen their finances.
Baden-Wuerttemberg didn’t join the lawsuit as its government
wants to negotiate a reform of the system that will remain in
place until at least 2019.

Nine of Germany’s 16 states are run by coalitions led by
the Social Democrats, in opposition at federal level, while six
are ruled by coalitions led by Merkel’s party, or the CSU in
Bavaria’s case. Baden-Wuerttemberg is governed by a Green state
premier whose party is also in opposition nationally.